“Selling the News” on J.P. Morgan Earnings (JPM)

Banks may have the wind at their backs, but there appears to be a ‘sell the news’ reaction this morning after J.P. Morgan Chase & Co. (NYSE: JPM) reported its fourth quarter earnings.  The bank touted as the healthiest of the money center banks beat earnings at $1.12 EPS versus the Thomson Reuters estimate of $0.99 EPS.  We had written down $1.00 as the estimate before and we were actually looking for as much as $1.10 this morning by our own count.  The banking giant posted almost 6% higher revenues to $26.72 billion versus a Thomson Reuters estimate of $24.44 billion.

A significantly lower credit loss provision and overall higher revenues drove the earnings.   Non-interest revenue was up more than 35% to $14.5 billion on principal transactions revenue and by higher mortgage fees and other related income.  Net interest income was down 15% to $12.2 billion due to rates and lower loan and securities balances.

The provision for credit losses was down a sharp 66% to $3.0 billion; total consumer provision for credit losses was cut by more than half to $3.1 billion on reductions in the allowance for credit losses for both credit cards and for mortgages.  JPMorgan is citing improved delinquency trends coupled with a lowering of credit losses.  Consumer net charge-offs were $4.8 billion versus $6.6 billion a year earlier. Non-performing assets were $16.6 billion versus $19.7 billion a year ago and versus $17.7 billion in the third quarter.  The total credit reserves across the company fell to $33.0 billion, resulting in a coverage ratio of 4.5% of total loans.

JPMorgan’s Tier 1 Common ratio was estimates at 9.8% at the end of the year versus 8.8% a year before and versus 9.5% one quarter back.

JPMorgan shares closed at $44.45 yesterday and shares are trading down 0.35% at $44.30 on nearly 1 million pre-market shares with an hour to go before the open.  The 52-week trading range is $35.16 to $48.20 and analysts had a pre-earnings consensus price target of just above $53.00.  The reason for a ‘sell the news’ reaction is rather simple if you look at the chart… Jamie Dimon’s great bank stock is up by about 17% over the last 90-day period and shares are up about 25% since the August lows.

It was a good quarter and metrics continue to improve.  The problem is that this was already known.  Next issue: a dividend growth reinstatement before Summer.

JON C. OGG